Hong Kong Chief Executive says current cost is 'quite frightening'

Hong Kong - Hong Kong home prices are "quite frightening" as growing wealth in the Chinese mainland fuels increases of 2 percent a month, according to the city's Chief Executive Donald Tsang.

"Over the last 30 months, property prices are growing in Hong Kong at a rate of 2 percent a month, which is quite frightening," Tsang said in an interview in Melbourne on Friday.

Chinese buyers of Hong Kong property are exacerbating the territory's shortage of land for development, he added.

During the past year, Tsang and other government officials have warned of an asset bubble in the city, where home prices have surged more than 70 percent since the beginning of 2009 on record low interest rates and an influx of buyers from the Chinese mainland.

Since late 2009, the government has raised minimum downpayments and deposits for mortgage borrowers, increased land supply and imposed extra transaction taxes to curb real estate value.

Buyers from overseas and other Chinese cities accounted for about a third of luxury-home transactions in the first quarter of this year, according to Centaline Property Agency Ltd, the city's biggest privately held realtor.

Savills PLC ranks Hong Kong as the most expensive place to buy an apartment.

The most recent measures, announced a week ago, include requiring borrowers whose income is primarily from outside Hong Kong to deposit an extra 10 percent when they buy properties unless they can demonstrate a "close connection" with the city.

The Hang Seng Property Index, which measures the stock performance of seven Hong Kong developers, headed for a 2 percent drop this week, extending this year's decline to 9.7 percent. The benchmark Hang Seng Index is down 5 percent this year.

The property market has been "volatile" since November and there are signs of "renewed exuberance" after the market cooled down in March and April, Norman Chan, the chief executive of the Hong Kong Monetary Authority, the city's de facto central bank, said in a June 10 briefing announcing the measures.

Chan earlier warned about the risk of a "credit-fueled property bubble".

Property transactions fell for a fifth straight month in May after Hong Kong banks, including HSBC Holdings Plc, began raising mortgage lending rates in October.

Still, home prices of Hong Kong gained 1.3 percent in the week ended June 5 from the previous seven days, according to Centaline.

Prices may drop by between 10 percent and 20 percent in 2012, and a further 10 percent in 2013 on rising rates, Andrew Lawrence, a Hong Kong-based analyst at Barclays Capital, said last week.

Bloomberg News

(China Daily 06/18/2011 page10)